Matter of Astro-Netics, Inc.

Citations: 28 B.R. 612; 1983 Bankr. LEXIS 6488Docket: 19-40868

Court: United States Bankruptcy Court, E.D. Michigan; April 4, 1983; Us Bankruptcy; United States Bankruptcy Court

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NBD Troy Bank, a secured creditor of Astro-Netics, Inc., filed an application for loan servicing and attorneys' fees under 11 U.S.C. § 506(b) following the Debtor's Chapter 11 filing. The Debtor objected, arguing that NBD Troy's actions led to the litigation and that the requested fees were unreasonable. The court determined that NBD Troy is an oversecured creditor entitled to reimbursement for fees as the loan agreements included provisions for recovery of costs associated with collection, including attorneys' fees. However, the court found the amount requested by NBD Troy to be excessive and awarded a reduced sum instead. The case details NBD Troy's various loan agreements with Astro-Netics, which included stipulations for reimbursement of legal fees in the event of default or acceleration. NBD Troy's security interests covered all of the Debtor's assets, guaranteeing that collection costs and attorneys' fees were secured alongside the principal and interest on the loans.

On May 14, 1982, the court approved the D-I-P Note, Loan Modification Agreement, and related security agreements, granting NBD Troy priority under Section 364(c) of the Bankruptcy Code over other administrative costs. It was specified that expenses from future proceedings would not be charged against the Debtor's property secured by NBD Troy. Following the Debtor-in-Possession's default on the D-I-P Note, NBD Troy moved to convert the case from Chapter 11 to Chapter 7, leading to a conversion order on November 24, 1982. On December 16, 1983, the court lifted the automatic stay, allowing NBD Troy to collect accounts receivable directly.

NBD Troy seeks reimbursement under Section 506(b) for attorneys' fees ($29,270), collection expenses ($651), and servicing fees ($4,245.27), totaling $34,166.27. Section 506(b) permits recovery of interest and reasonable fees for oversecured creditors. It is established that NBD Troy's security documents allow such recovery, and it has satisfied the condition of being oversecured by collecting $108,000 over its claim, which was turned over to the Trustee.

The Debtor contests this, alleging that NBD Troy's actions caused conflicts with the IRS and that only the motion to lift the automatic stay falls under Section 506(b). The court disagrees, stating that various remedies under the Bankruptcy Code are not mutually exclusive and that the Debtor has not proven bad faith on NBD Troy's part. Therefore, NBD Troy is entitled to seek recovery under the provisions of the Code.

NBD Troy has met the criteria for recovery under 506(b), with the primary issue being the reasonableness of the requested fees. The court follows the analysis from Johnson v. Georgia Highway Express, which outlines twelve factors to evaluate fee requests, including time and labor, complexity of legal issues, required skill, and customary fees in the area. NBD Troy's counsel billed a total of 293.3 hours, including 263.9 hours by attorneys and 29.4 hours by a legal assistant, amounting to a fee request of $29,270.00 at approximately $100.00 per hour. Notably, 57.4 hours were spent on communication tasks that do not require advanced legal skills. Recognizing the sophistication of the litigation, the court determined a reasonable attorneys' fee of $20,136.00, plus $1,029.00 for the legal assistant, and allowed expenses of $651.00 and $4,245.27 related to loan servicing. The total award under 506(b) is $26,061.27, classified as an allowed secured claim against the Debtor. The order concludes with notes referencing the validity of NBD Troy's claims and various sections of the U.S. Code.